The initial impulse for the choice of the subject for this work was the discussion about the applicability of the existing risk measurement and portfolio management methods to real estate.482 In turns out that the main difficulty with this asset class is the lack of perfect liquidity, which is required by most capital market theories. While researchers generally agree that this issue is of high importance, there is surprisingly little related literature; operational approaches that could help investors to improve their decision quality are practically absent. The ambitious goal of this book was, thus, to propose a way of coping with the illiquidity problem. Moreover, it should not only remain a theoretical concept based on non-measurable features but also have a potential of practical implementation in the future. Preferably, it should also be compatible with the existing decision frameworks, like the mean-variance approach to portfolio optimization. In the light of the enormous complexity of the problem, a methodical approach was needed that would allow capturing the full scope of liquidity within one consistent and easily handled model. The solution was provided by the mathematical apparatus of the Theory of Search. This approach, suggested already by (1986), proved to be most promising for coping with problems encountered when liquidating privately traded assets. The main goal of the analysis was, thus, to translate and, if needed, to amend the search theoretical methodology for modeling liquidation processes. I believe that the resulting approach is unique and novel in a number of different aspects.
KeywordsReal Estate Perfect Liquidity Reservation Price Search Model Asset Class
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